1. Sand Sweet Corp. issued 20 year bonds three years ago (maturity 2036) with a 7%...

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1. Sand Sweet Corp. issued 20 year bonds three years ago(maturity 2036) with a 7% coupon, with interest paid semi-annually.Market and company circumstances have changed so that the currentrisk factor on the bonds has dropped to 6%. What is the currentmarket price of the bonds? (THINK ABOUT THE CORRECT NUMBER OFINTEREST PAYMENTS; SHOULD PRICE BE MORE OR LESS THAN 1000?)

2. Chapter LTD has bonds on the market with fifteen years remaininguntil maturity which are currently selling for $920. The bond payinterest annually; and at the current price the bonds are expectedto yield 7% to new purchasers. What is the coupon rate negotiatedwhen the bonds were first issued? (SOLVE FOR PMT, CONVERT TOCOUPON)

3. Rev Inc. expects to pay a $ 1.50 per share cash dividend NEXTYEAR; and projects a growth rate on future dividends of 4%. Ifinvestors require a 7% return on their investment; what is thestock’s current market price? (DGM formula—solve for P)
4. The 8.5 percent ANNUAL coupon bonds of Eberly, Inc., WITHINTEREST PAID SEMI-ANNUALLY are currently selling for $1130.12. Thebonds have a face value of $1,000 and mature in 12 years. What isthe yield to maturity required by purchasers of the bondtoday?

5. A Biosystems, Inc. bond has a 9% coupon rate and $ 1,000 face(par) value. Interest is paid semi-annually; and bond will maturein 16 years. Current market conditions are such that bonds ofsimilar risk must generate a 12% return. What should be the bond’scurrent market selling price?

6. Hit “Em” Straight, Inc. projects that its annual dividends willgrow at the rate of 5.1% annually indefinitely. If it has aDividend yield of 3.4%, what is the required rate of return on thecompany’s common stock?

Answer & Explanation Solved by verified expert

4.1 Ratings (729 Votes)

K = Nx2

Bond Price =? [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2

k=1

K =17x2

Bond Price =? [(7*1000/200)/(1 + 6/200)^k] + 1000/(1 + 6/200)^17x2

k=1

Bond Price = 1105.66

K = N

Bond Price =? [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N

k=1

K =7

920 =? [(Coupon rate*1000/100)/(1 + 15/100)^k] + 1000/(1 + 15/100)^7

k=1

Coupon rate% = 13.08

Please ask remaining parts separately, questions are unrelated. I have done one bonus

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1. Sand Sweet Corp. issued 20 year bonds three years ago(maturity 2036) with a 7% coupon, with interest paid semi-annually.Market and company circumstances have changed so that the currentrisk factor on the bonds has dropped to 6%. What is the currentmarket price of the bonds? (THINK ABOUT THE CORRECT NUMBER OFINTEREST PAYMENTS; SHOULD PRICE BE MORE OR LESS THAN 1000?)2. Chapter LTD has bonds on the market with fifteen years remaininguntil maturity which are currently selling for $920. The bond payinterest annually; and at the current price the bonds are expectedto yield 7% to new purchasers. What is the coupon rate negotiatedwhen the bonds were first issued? (SOLVE FOR PMT, CONVERT TOCOUPON)3. Rev Inc. expects to pay a $ 1.50 per share cash dividend NEXTYEAR; and projects a growth rate on future dividends of 4%. Ifinvestors require a 7% return on their investment; what is thestock’s current market price? (DGM formula—solve for P)4. The 8.5 percent ANNUAL coupon bonds of Eberly, Inc., WITHINTEREST PAID SEMI-ANNUALLY are currently selling for $1130.12. Thebonds have a face value of $1,000 and mature in 12 years. What isthe yield to maturity required by purchasers of the bondtoday?5. A Biosystems, Inc. bond has a 9% coupon rate and $ 1,000 face(par) value. Interest is paid semi-annually; and bond will maturein 16 years. Current market conditions are such that bonds ofsimilar risk must generate a 12% return. What should be the bond’scurrent market selling price?6. Hit “Em” Straight, Inc. projects that its annual dividends willgrow at the rate of 5.1% annually indefinitely. If it has aDividend yield of 3.4%, what is the required rate of return on thecompany’s common stock?